Bank of Bermuda chief operations officer Philip Butterfield said $45 per share was a fair price for the sale of the Island's largest financial institution to multinational bank HSBC ? and was in line with the price being paid in other recent bank acquisitions globally.

Speaking with The Royal Gazette following a round of talks with some 1,200 local staff the previous day, Mr. Butterfield yesterday talked through why the offered price ? with HSBC paying $1.3 billion in cash for the acquisition ? was fair, and how it was arrived at.

"In a transaction of this nature it is important to think about it in the context in which an offer is made. When an acquisition is considered, the acquirer is looking at the earnings stream that they are taking on. And if you look at the multiple of our earnings stream in this transaction, you see it is 17 times earnings. That is, by and large, in line with any other transaction that has been done in the last year (in this sector).

"In the last 12 months, looking at any acquisition of a financial services company, 17 (times earnings) is in the right ballpark. In our view that is the proper measure, metric to use in evaluating whether we received a fair price," he said.

Although merger and acquisition activity (M&A) has been depressed since 2001, Mr. Butterfield said it had picked up and stressed that one could never time a deal perfectly.

To the naysayers who said $45 per share was too low price to be paid for the bank, Mr. Butterfield said for some the price would never have been enough: "I think the human condition is such that for some people, no price no matter how high, is going to be acceptable.

"One of the things I learned early in my business life is that when it comes to compensation and timing the market to get the best possible price, one is never going to achieve an optimal result."

Mr. Butterfield added: "In terms of compensation, if you were to ask me if I'd like to be paid $10,000 more, I am never going to tell you, no. That is the human condition. But if you talk to me about whether or not I deserve $10,000 in comparison to my contribution, that is the negotiation process that we engage in individually and in which (CEO) Henry (Smith) and I engaged in reaching closure with HSBC."

The deal was also assessed by Merrill Lynch. "We had an independent assessment made of the price in regards to its fairness by Merrill Lynch, a premier financial advisor and major player in the financial institutions M&A business. They rendered to our board a fairness opinion that said this was a fair price to receive. They have a reputation to maintain and they would not have rendered that opinion without very serious consideration, so I am comforted that the price is fair," he said.

Mr. Butterfield added that shareholders were unlikely to get a better price for shares on the open market, if they were dealing with any real volume of shares." The other thing to keep in mind is that even though our shares were listed on Nasdaq, our shares were very thinly traded. Any sizeable share position, in my opinion, would never have been able to realise even the quoted price. If you had 200,000 shares and you put them all on the market at $50, it would have driven the price down because there would not have been a buyer for that position."

Although Mr. Butterfield conceded that that could have changed as the bank's stock became better known and tracked by analysts, he said that would have taken time.

"It was not beyond our capacity but it would have taken time," he said, adding that this was the right "suitor" at the right time.

"When you think you've got the right partner you've got to take your step. That had a significant influence on how we got to where we are today. We very much believe, analytically looking at this transaction, that there is no better partner the Bank of Bermuda could find."

Although the sale of the bank has fetched a per share price equal to a 16.3 percent premium over the average closing price of the shares trading on the Nasdaq over the last three months, Mr. Butterfield said other deals that had got more were not a fair comparison.

"There is the FleetBoston/Bank of America transaction that started about at a 40 percent premium and has quickly declined to 26 and I don't know what their share price closed at yesterday but if it continues to move down, that premium is shrinking. So to hold out FleetBoston/Bank of America as a standard is not a reasonable comparison. "Also take into context, two recent large acquisitions made by HSBC of a French bank and the Republic Bank in the US. The premium on those transactions was higher than the premium on ours, but HSBC was buying an enterprise that operates in a much larger economy.

"In looking at the future earnings stream you could possibly derive from those transactions, you might choose to pay more because the opportunity is larger. I don't want to place constraints on what is a very vibrant economy here in Bermuda but it does pale in comparison to the North American and French markets that those two transactions were domiciled in."